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Subject Code: BACCINSX

Subject Title: Accounting Information System

Subject Description: Accounting information Systems (AIS) introduces students to the

systems that underlie bookkeeping, accounting, financial reporting,
tax reporting, and auditing in all business firms. Such systems are
increasingly complex and in a continual state of flux do to rapidly
changing technologies and security risks. In this course, the students
learn about the development of standards and practices for
accounting information systems and gain hands-on experience in,
the use of electronic spreadsheet software for advanced business
analysis, and to gain hands-on experience with a commercial
accounting software package. The highlight of this course is the
actual hands-on on the most sought-after Enterprise Resource
Planning (ERP) software, SAP Business One.

No. of Units: 3

Class Schedule: AIS101: Face-to-Face: Friday 1:00pm – 5:00pm

Course Learning Outcomes:

At the end of the course, the student will be able to:
● Understand why IT in general is important to accounting and auditing, Explain the
role, purpose and importance of an accounting information system and examine how
an AIS can add value to an organization, and its role in company strategy and
decision making.
● Use the relationship between ethics and decision-making, understand what risk
assessments are and how the impact accounting roles and describe the threats and
computer fraud faced by modern information systems.
● Differentiate control concepts and frameworks in the internal environment of a
company. Determine appropriate internal controls to reduce the risk in an
organization and apply the common internal controls to accounting information
systems
● Create and use data flow diagrams and flowcharts to understand, evaluate, and
document information systems to make a model and diagram of different business
systems and processes.
● Identify the business activities and information processing operations in the revenue,
expenditure, production and human resources management (HRM)/payroll cycles,
and general ledger and determine the different risks and controls that is related to the
different business operations.
● Utilize the data processing cycle, data collection and processes, types of information
output, and enterprise resource planning (ERP).

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About the Instructor:

PROF. ROBIN R. DE VERA, CPA, MBA

● Doctor in Business Administration – La Consolacion University Philippines, on-going
● Master in Business Administration – Far Eastern University, 2021
● Graduated from Baliwag Polytechnic College (Cum Laude), 2018
● Member, PICPA Bulacan

______________________________________________________________________________
Topic 1
The Information System: An Accountant’s Perspective

Objectives:
• Understand the primary information flows within the business environment.
• Understand the difference between accounting information systems and management
information systems.
• Understand the difference between financial transactions and non-financial transactions.
• Know the general model for information systems.
• Be familiar with the functional areas of a business.
• Understand the stages in the evolution of information systems.
• Understand the relationship between the three roles of accountants in an information
system.

Internal & External Information Flows

Internal Information Flows

• Horizontal flows of information used primarily at the operations level to capture
transaction and operations data
• Vertical flows of information
o downward flows — instructions, quotas, and budgets
o upward flows — aggregated transaction and operations data

Information Requirements
• Each user group has unique information requirements.

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 • The higher the level of the organization, the greater the need for more aggregated
information and less need for detail.

Information in Business
• Information is a business resource that:
o needs to be appropriately managed
o is vital to the survival of contemporary businesses

What is a System?
• A group of interrelated multiple components or subsystems that serve a common purpose
• System or subsystem?
o A system is called a subsystem when it is viewed as a component of a larger system.
o A subsystem is considered a system when it is the focus of attention.

System Decomposition versus System Interdependency

• System Decomposition
o the process of dividing the system into smaller subsystem parts
• System Interdependency
o distinct parts are not self-contained
o they are reliant upon the functioning of the other parts of the system
o all distinct parts must be functioning or the system will fail

What is an Information System?

• An information system is the set of formal procedures by which data are collected,
processed into information, and distributed to users.

Transactions
• A transaction is a business event.
• Financial transactions
o economic events that affect the assets and equities of the organization
o e.g., purchase of an airline ticket
• Nonfinancial transactions
o all other events processed by the organization’s information system
o e.g., an airline reservation — no commitment by the customer

What is an Accounting Information System?

• Accounting is an information system.

o It identifies, collects, processes, and communicates economic information about a
firm using a wide variety of technologies.
o It captures and records the financial effects of the firm’s transactions.

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 o It distributes transaction information to operations personnel to coordinate many
key tasks.

• An accounting information system (AIS) consists of:

o People
o Procedures
o Data
o Software
o Information technology infrastructure

What important functions does the AIS perform in an organization?

• It collects and stores data about activities and transactions.
• It processes data into information that is useful for making decisions.
• It provides adequate controls to safeguard the organization’s assets

Why Study AIS?

• Auditors need to understand the systems that are used to produce a company’s financial
statements.
• Tax professionals need to understand enough about the client’s AIS to be confident that
the information used for tax planning and compliance work is complete and accurate.
• One of the fastest growing types of consulting services entails the design, selection, and
implementation of new Accounting Information Systems.
• A survey conducted by the Institute of Management Accountants (IMA) indicates that
work relating to accounting systems was the single most important activity performed by
corporate accountants.

AIS versus MIS

• Accounting Information Systems (AIS) process
o financial transactions; e.g., sale of goods
o nonfinancial transactions that directly affect the processing of financial
transactions; e.g., addition of newly approved vendors
• Management Information Systems (MIS) process
o nonfinancial transactions that are not normally processed by traditional AIS; e.g.,
tracking customer complaints

AIS versus MIS?

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AIS Subsystems
• Transaction processing system (TPS)
o supports daily business operations
• General Ledger/ Financial Reporting System (GL/FRS)
o produces financial statements and reports
• Management Reporting System (MRS)
o produces special-purpose reports for internal use

General Model for AIS

Data Sources
• Data sources are financial transactions that enter the information system from internal and
external sources.
o External financial transactions are the most common source of data for most
organizations.
§ E.g., sale of goods and services, purchase of inventory, receipt of cash, and
disbursement of cash (including payroll)
o Internal financial transactions involve the exchange or movement of resources
within the organization.
§ E.g., movement of raw materials into work-in-process (WIP), application
of labor and overhead to WIP, transfer of WIP into finished goods
inventory, and depreciation of equipment

Transforming the Data into Information

Functions for transforming data into information according to the general AIS model:
1. Data Collection
• Capturing transaction data
• Recording data onto forms
• Validating and editing the data

2. Data Processing
• Classifying
• Transcribing

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 • Sorting
• Batching
• Merging
• Calculating
• Summarizing
• Comparing

3. Data Management
• Storing
• Retrieving
• Deleting
4. Information Generation
• Compiling
• Arranging
• Formatting
• Presenting

Characteristics of Useful Information

• Regardless of physical form or technology, useful information has the following
characteristics:
o Relevance: serves a purpose
o Timeliness: no older than the time period of the action it supports
o Accuracy: free from material errors
o Completeness: all information essential to a decision or task is present
o Summarization: aggregated in accordance with the user’s needs

Information System Objectives in a Business Context

• The goal of an information system is to support
o the stewardship function of management
o management decision making
o the firm’s day-to-day operations

Organizational Structure
• The structure of an organization helps to allocate
o responsibility
o authority
o accountability
• Segmenting by business function is a very common method of organizing.

Functional Areas
• Inventory/Materials Management
o purchasing, receiving and stores
• Production
o production planning, quality control, and maintenance
• Marketing
• Distribution
• Personnel
• Finance
• Accounting
• Computer Services

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Accounting Independence
• Information reliability requires accounting independence.
o Accounting activities must be separate and independent of the functional areas
maintaining resources.
o Accounting supports these functions with information but does not actively
participate.
o Decisions makers in these functions require that such vital information be supplied
by an independent source to ensure its integrity.

The Computer Services Function

Organization of IT Function in a Centralized System

Organizational Structure for a Distributed Processing System

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Potential Advantages of DDP (Distributed Data Processing)
• Cost reductions in hardware and data entry tasks
• Improved cost control responsibility
• Improved user satisfaction since control is closer to the user level
• Backup of data can be improved through the use of multiple data storage sites

Potential Disadvantages of DDP (Distributed Data Processing)

• Loss of control
• Mismanagement of company resources
• Hardware and software incompatibility
• Redundant tasks and data
• Consolidating tasks usually segregated
• Difficulty attracting qualified personnel
• Lack of standards

Manual Process Model

• Transaction processing, information processing, and accounting are physically performed
by people, usually using paper documents.
• Useful to study because:
o helps link AIS courses to other accounting courses
o often easier to understand business processes when not shrouded in technology
o facilitates understanding internal controls

The Evolution of IS Models: The Flat-File Model

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Data Redundancy Problems
• Data Storage - excessive storage costs of paper documents and/or magnetic form
• Data Updating - changes or additions must be performed multiple times
• Currency of Information - potential problem of failing to update all affected files
• Task-Data Dependency - user’s inability to obtain additional information as needs change
• Data Integration - separate files are difficult to integrate across multiple users

The Evolution of IS Models: The Database Models: An REA Data Model Example
`

REA Data Model Example

REA Model
• The REA model is an accounting framework for modeling an organization’s
o economic resources; e.g., assets
o economic events; i.e., affect changes in resources
o economic agents; i.e., individuals and departments that participate in an economic
event
o Interrelationships among resources, events and agents
• Entity-relationship diagrams (ERD) are often used to model these relationships.

Accountants as Information System Users

• Accountants must be able to clearly convey their needs to the systems professionals who
design the system.
• The accountant should actively participate in systems development projects to ensure
appropriate systems design.

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Accountants as System Designers
• The accounting function is responsible for the conceptual system, while the computer
function is responsible for the physical system.
• The conceptual system determines the nature of the information required, its sources, its
destination, and the accounting rules that must be applied.

Accountants as System Auditors

• External Auditors
o attest to fairness of financial statements
o assurance service: broader in scope than traditional attestation audit
• IT Auditors
o evaluate IT, often as part of external audit
• Internal Auditors
o in-house IS and IT appraisal services

- end -

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______________________________________________________________________________
ACTIVITY

1. USERS OF INFORMATION
Classify the following users of information as either:
I—internal user
T—external user: trading partner
S—external user: stakeholder

a. Internal Revenue Service

b. Inventory control manager
c. Board of directors
d. Customers
e. Lending institutions
f. Securities and Exchange Commission
g. Stockholders
h. Chief executive officer
i. Suppliers
j. Bondholders

2. SUBSYSTEMS
Use the human body system to illustrate the concepts of system decomposition and subsystem
interdependency. Draw a hierarchical chart and discuss the interdependencies.

3. INFORMATION SYSTEM CATEGORIZATION

Classify the following items as either:
TPS—transaction processing system
FRS—financial reporting system
MRS—management reporting system

a. Variance reports
b. Sales order capture
c. Balance sheet
d. Budgets
e. Purchase order preparation
f. Tax returns
g. Sales summary by product line
h. Cash disbursements preparation
i. Annual report preparation
j. Invoice preparation
k. Cost-volume-profit analysis

4. DISTRIBUTED DATA PROCESSING

Explain why an organization would choose to install a distributed instead of a centralized computer
environment.

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MULTIPLE-CHOICE QUESTIONS:
1 Which of the following is NOT a financial transaction?
a. purchase of products
b. cash receipts
c. update valid vendor file
d. sale of inventory
2 The following are subsystems of the Accounting Information System, EXCEPT
a. Transaction Processing System.
b. Human Resources System.
c. General Ledger/Financial Reporting System.
d. Management Reporting System.
3 Which of the following is NOT a purpose of the Transaction Processing System?
a. managing and reporting on the status of financial investments
b. converting economic events into financial transactions
c. distributing essential information to operations personnel to support their daily
operations
d. recording financial transactions in the accounting records
4 The objectives of the data collection activity of the general model for Accounting
Information Systems are to collect data that are
a. relevant and redundant.
b. efficient and objective.
c. efficient and redundant.
d. efficient and relevant.
5 Which of the following is NOT a characteristic of effective information?
a. relevance
b. accuracy
c. summarization
d. precision
6 Which of the following is NOT a database management task?
a. retrieval
b. storage
c. summarization
d. deletion
7 When viewed from the highest to most elemental level, the data hierarchy is
a. attribute, record, file.
b. record, attribute, key.
c. file, record, attribute.
d. file, record, key.
e. key, record, file.
8 Which is NOT an accountant’s primary role in information systems?
a. system user
b. system auditor
c. system designer
d. system programmer
9 Which of the following is NOT an objective of all information systems?
a. support for the stewardship function of
b. management
c. support for management decision making

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 d. support for the day-to-day operations of the firm
e. all of the above are objectives
10 Which of the following best describes the activities of the materials management
function?
a. purchasing, receiving, and inventory control
b. receiving, sales, distribution, and purchasing
c. receiving, storage, purchasing, and accounts payable
d. purchasing, receiving, and storage
e. purchasing, storage, and distribution
11 Which of the following best describes the activities of the production function?
a. maintenance, inventory control, and production planning
b. production planning, quality control, manufacturing, and cost accounting
c. quality control, production planning, manufacturing, and payroll
d. maintenance, production planning, storage, and quality control
e. manufacturing, quality control, and maintenance
12 Which of the following best describes the activities of the accounting function?
a. inventory control, accounts payable, fixed assets, and payroll
b. fixed assets, accounts payable, cash disbursements, and cost accounting
c. purchasing, cash receipts, accounts payable, cash disbursements, and payroll
d. inventory control, cash receipts, accounts payable, cash disbursements, and
payroll
e. inventory control, cost accounting, accounts payable, cash disbursements, and
payroll
13 Which statement best describes the issue of distributed data processing (DDP)?
a. The centralized and DDP approaches are mutually exclusive; an organization
must choose one approach or the other.
b. The philosophy and objective of the organization’s management will determine
the extent of DDP in the firm.
c. In a minimum DDP arrangement, only data input and output are distributed,
leaving the tasks of data control, data conversion, database management, and data
processing to be centrally managed.
d. The greatest disadvantage of a totally distributed environment is that the
distributed information processing unit locations are unable to communicate and
coordinate their activities.
e. Although hardware (such as computers, database storage, and input/output
terminals) can be effectively distributed, the systems development and
maintenance tasks must remain centralized for better control and efficiency.
14 Which of the following is a disadvantage of distributed data processing?
a. End-user involvement in systems operation is decreased.
b. Disruptions due to mainframe failures are increased.
c. The potential for hardware and software incompatibility across the organization is
increased.
d. The time between project request and completion is increased.
e. All of the above are disadvantages

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